Citigroup M&A target stocks surge

by Yiqin Shen

A group of US stocks that Citigroup Inc. considers to be acquisition targets is staging an outsize rally, underscoring Wall Street’s renewed optimism that dealmaking will revive along with the economy as tariff worries ease.

The bank’s US M&A Targets Basket has surged 44% since April 8, the day before President Donald Trump announced a pause on tariffs on many countries. It’s the fastest advance on record in such a timespan since pricing for the index, which tracks 40 stocks identified by the bank’s equity-trading strategy desk, began in 2022. It’s also a stark reversal after the gauge plunged from late January through early April on tariff-driven worries.

The rebound — more than double that of the S&P 500 Index over the same period — is an indication that risk appetite is returning to a highly speculative part of the market. It’s part of the bullish sentiment that swept markets last week on bets that the US economy will recover and the S&P 500 will eclipse its February record high. 

“It’s very much a symptom of institutional risk tolerance,” Citigroup’s Stuart Kaiser said, referring to the M&A basket’s recent gains. The names in the basket, like Reddit Inc. and Cloudflare Inc., tend to be volatile stocks that have takeover potential but no deals announced just yet.

Signs that dealmaking is returning already emerged last week, with some of the first significant transactions announced since Trump on April 2 unveiled steep tariffs on global trading partners. Dick’s Sporting Goods Inc. reached a $2.4 billion deal to acquire Foot Locker Inc., and Charter Communications Inc. agreed to combine with Cox Communications.

The announcements are good news for market-watchers who kicked off the year expecting Trump’s pro-business promises to fuel more dealmaking, only to see his tariff policies weigh on the stock market and stifle the flow of large transactions. Citigroup’s Kaiser now expects the M&A basket, which is reshuffled roughly every quarter, to reach or surpass the highs of the year it hit in January.

The basket utilizes Citi Quantitative Research’s fundamental-based screen and overlays that with options pricing metrics associated with the names involved. Capri Holdings Ltd. and Tapestry Inc. are among companies in the basket that were involved in a takeover deal — in this particular case, their merger was blocked by the Federal Trade Commission in late 2024. 

Looking Ahead

Of course, trade friction may very well re-emerge, and consumer sentiment is also tumbling on concern that tariffs will cause inflation to heat up. These factors could derail the risk-on mood on Wall Street and dissuade companies from pursuing deals.

There’s also no guarantee that potential takeover talks will produce an agreement, and announced acquisitions don’t always close. Market upheaval only stiffens the headwinds for dealmakers. That happened in early April, when billions of dollars worth of acquisitions and initial public offerings were on hold because of the trade war.

But for now, market-watchers like Vital Knowledge’s Adam Crisafulli are confident that recent deal announcements are a sign of more to come.

“Corporate America is starting to get more comfortable about committing to strategic changes now that trade uncertainty has eased a bit,” he said.